Hindu Undivided Family is often referred to as HUF in short. Hindus, Buddhists, Jains, and Sikhs can form a family unit and pooling assets to form a Hindu Undivided Family. HUFs will be allocated its own PAN and will file income tax independent of the individuals who form it.
HUF members are called coparceners. They have to be related to each other and the head of the family, who is known as karta. A Hindu Coparcenary includes those individuals who have a stake in joint family property by birth. Till September 6, 2005, only males could become coparceners but since that day, daughters have got the same right. Only those who are coparceners have a right to separation.
What is HUF and its benefits
HUF is usually a tool to build assets. The status of the head of HUF or karta is extremely significant. It decides the nature of the HUF. HUF can be resident or non-resident depending on where the management of its affairs is located, or where the karta resides. If it is wholly or partially in India, it would be resident HUF. If the control is situated wholly outside India, it would be non-resident.
What is the benefit of HUF in income tax
A HUF can claim deductions/exemptions separately from members. If a couple and their 2 children create an HUF, all 4 as well as the HUF can claim deduction for Section 80C. These deductions lead to a reduction in the income tax payable. However, a HUF is taxed at the same rates as the individual taxpayer. The laws permit investments to be made from the HUF’s income and returns from such investments stand taxable in the hands of that HUF. There are some other activities that a HUF can do. A HUF can decide to pay salary to the members. It can be done if contribute to its functioning and operation. The salary can be treated as an expense and deducted from the HUF’s income. A HUF is allowed to buy a life insurance policy for its members.
The HUF, or Hindu Undivided Family is an effective way of creating a family unit and save income tax. Buddhists, Jains, and Sikhs can also form a Hindu Undivided Family apart from Hindus. Personal Finance Business News – Personal Finance News, Share Market News, BSE/NSE News, Stock Exchange News Today
